USD/JPY: Dollar Edges Up As Japanese Trade Deficit Widens

 | Oct 21, 2013 09:51AM ET

The USD/JPY has edged higher as we begin the new trading week. The pair is trading slightly above the 98 line in Monday's European session. In economic news, the Japanese trade deficit widened, hitting a seven-month high. Today’s highlight is US Existing Home Sales. The markets will also be keeping a close eye on Non-Farm Payrolls, which will be released on Tuesday.

Japan continues to post trade deficits. The deficit widened in September, jumping from -0.79 trillion to -1.09 trillion yen. This was higher than the estimate of -1.06 trillion, and was the highest deficit since February. With the Japanese yen shrinking by close to 25% in the past year, Japanese imports have become more expensive, and this cost has outstripped the growth in exports. Unless the yen improves dramatically, we can expect the long string of deficits to continue.

After a bitter political struggle which saw the US on the brink of a sovereign default, the Republicans and Democrats finally reached an agreement last week to reopen the government and raise the debt ceiling. However, the deal provides short-term relief only - the government will be funded until January 15, while the debt limit will be raised until February 7. So, we could be right back where we started in just a few months. The dollar initially gained ground after the agreement was announced, but was broadly lower as optimism faded.

The recent government shutdown cancelled some US economic releases, notably Non Farm Payrolls, one of the most important employment releases. The September report was supposed to be released in early October, but has been rescheduled for release on Tuesday. The NFP release could have a major impact on EUR/USD. Meanwhile, last week's Unemployment Claims came in at 357 thousand, very close to the estimate of 358 thousand. This figure was an improvement from last week, but still well above previous releases. The shutdown inflated the release, as hundreds of thousands of Federal employees were laid off. This week's estimate is lower, with an estimate of 341 thousand.